(Updates with Morgan Stanley's response in the fourth paragraph.)

JPMorgan Chase (JPM) and Barclays (BCS) are among the Wall Street banks that recently started trading credit default swaps, or CDS, against flagship private credit funds run by Blackstone (BX), Apollo Global Management (APO) and Ares Management (ARES), the Financial Times reported Friday, citing people briefed on the matter.

Morgan Stanley (MS), Citigroup (C) and other banks were also offering to trade the contracts on the three funds, the unnamed sources told the publication, adding that activity so far had been "relatively modest."

CDS pay out in case the investment vehicles default on their debt. They can be used to bet on or hedge against strains in the industry, according to the report.

Morgan Stanley declined to comment while the other banks didn't immediately respond to MT Newswires' requests for comment.

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